Selling a business to get your best price

Selling a business is the most popular business exit strategy for many business owners. Whatever your reason for selling you will want to get a sale, and sell for your best price. The following tips on selling a business will help you get the best price and a sale.

There are a number of factors that will influence your business' value.
When a business is being appraised by a perspective buyer they will be weighing up these factors when assessing the price. Obviously the Buyer wishes to close the deal at the lowest possible price, however most will also have a top-price, beyond which they will walk.

Plan your exit well in advance by having a business exit strategy to ensure you get the best price for your business: Key characteristics that add value are; Strong cash flow, good history and reputation, growth industry, competitive advantage, niche business with room for growth, good plant/location/systems, and good staff.

Characteristics that will lower its value; Distressed business, poor industry outlook, price cutting, weak financials, small customer base, key relationships held with owner, poor records/systems/plant. Attending to these long before you put your business on the market will ensure you get your best possible price.

Sell at the right time.
Selling a business because of bad health, you have to retire, or the business isn't doing well isn't necessarily a good time to sell. Not only can it be difficult for you to deal with the additional stress of selling a business under those circumstances; the buyer may use this as leverage against you. Don't wait until then. The right time to sell a business is when the business is going well, it looks attractive to buy, and you have time on your side.

Be clear on what's for sale.
Before selling a business, you need to decide exactly what will go with the business. Some assets you may sell off, others will help in boosting the value and capability of the business. How will you transfer the goodwill? If this is mainly personal goodwill what will you do to ensure it gets transferred with the sale? Quantify, tidy and package the goodwill, trademarks, client lists, and systems along with the appropriate physical assets and stock. The value of all these will depend on how they contribute to the business.

What your business is worth.
There are many different ways of calculating the value of a business. Sales contracts for small businesses normally define the value as the sum total of the inventory (stock), plus plant & fittings, plus goodwill. (Debtors and creditors are not normally part of the sale contract.)

The value of a business is largely influenced by profit. A person who buys a business is purchasing a future cash flow. The higher the anticipated cash flow, the higher the value of the business.

There are a number of tools like an “Earnings Multiplier” that are used by the professionals for working out the value of a business.  Business Brokers, accountants, and industry databases can help here.  It pays to have a professional business valuation done as too high a price may scare off potential buyers, and too low a price and you could be giving it away.

Make sure your business is in order.
When you're selling your business, this is the time tidy it up and make it look good; get your house in order, making the extra effort to keep things in top shape. After all, you want your best price. People want to buy sharp looking and thriving businesses, not a neglected one.

Use professionals when selling a business.
Generally, using a business broker is a good idea - especially if you have limited time to work with potential buyers, are not easily contactable or lack the necessary knowledge and skills to effectively market your business, or want some objectivity around the process as it can be an emotional time.

A business broker will help in packaging and marketing your business for sale and guide you in a marketing price. You may wish to do this work yourself using your lawyer, accountant and maybe a business valuer.

You only get one shot in selling your business, so make sure you take the time and trouble to do it right. Careful preparation, setting a fair price and using the professionals will help in ensuring you get your best price and a sale.

 

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